A practice principal who is today 55 has not only weathered Covid-19 but also the financial crisis, the tech bubble, 1991, 1987; no wonder some are ready to hand the baton on to the next generation.
Or, to put a more cheerful spin on it, many principals have built successful businesses over the past 20 or 30 years and are now ready to reap the rewards.
Given the appetite for acquisitions in the market, there are plentiful opportunities for advisers to sell up, ship out and settle into the type of stable and fulfilling retirement they have helped so many of their clients achieve over the decades.
Many principals have built successful businesses over the past 20 or 30 years and are now ready to reap the rewardsAnecdotally, while some are selling up to the consolidators, others are passing the reins to their children, nieces or nephews.
In one practice I check in with regularly, the two principals – a pair of old friends – have gradually transitioned the business to their two daughters – also close friends, who grew up together and took the decision to join the shared family business together in their 20s. Now that the daughters have served their apprenticeships under their dads, the older generation have stepped aside.
Whatever the approach to moving on, the impact is the same: a new generation of managers coming through, bringing fresh approaches and facing new challenges. I am calling it the 'Great Rotation'. And I see three big implications.
First, this new group of principals joined a professional industry that looked completely different from the one in which their predecessors started their careers. A decade on from Assessing Suitability and eight years after the Retail Distribution Review, advisers in their 30s today have never in their senior career known an industry in which fees were not charged and in which clients have not had to receive clear guidance on those fees. As a result, they have an understanding of investor protection that feels like a step change.
Second, the new generation may find themselves with a particularly complex client base. The demographics of most practices still reflect the practice principals – it is widely known that advisers typically win and look after clients who are within 10 years of their own age. That valuable client base will be handed on, and the new generation of managers will want to retain it. As a result, retirement – arguably the most complex part of the adviser’s job – will still be the central concern for many clients, and strong risk-based cash flow planning will be a vital part of the toolkit. Regulatory focus on issues such as drawdown further complicates the picture for this group.
At the same time, it will be important to secure the company's future by capturing new, younger clients. How can the new generation of advisers demonstrate the value that they add to their own age group? We are already seeing innovation in this space – practices providing advice to younger clients on a pro bono basis, for example, or businesses offering online seminars during lockdown.
Younger clients will also require a different set of services. Retirement is less of a focus, but this generation will need help with wealth accumulation, inheritance and cash flow planning. Advisers will need to get the risk assessment right for a group with very different attitudes and needs from their core client base.
That brings us to the third big takeaway: the expectations of this younger group. If the relationship between the demographic of the adviser and that of the client base holds out, advisers in their early 30s taking on more responsibility could be speaking to clients as young as their early 20s. This group has never known life without the internet.
For this generation, digital banks such as Monzo are setting a new bar for accessibility, transparency and engagement – a radical shift from a few decades ago, when the best most could hope for was a paper statement through the door once a month. Digital natives will look for these same standards from their financial planning.
That does not mean this group will do it all themselves. My bet is this is one area where they will look a lot like their parents. For most people, of any age, long-term financial planning is not something they are particularly engaged with. But if they are to engage, the younger generation of clients will need an approach that is transparent and accessible, with financial planning technology that can help to bring a far-off future to life.
This shift to a more technology-driven way of engaging with clients is a challenge for advisers, but many are already rising to it – and the pandemic has only accelerated the trend.
A survey conducted by Dynamic Planner found that more than 50 per cent of the companies that won the most new business during the pandemic used video calls for the discovery meeting.
Many exposed much more of the process to their clients – by enabling clients to complete their own risk profiling using apps, for example. In a time when the old approaches simply were not available, these high-achieving companies pivoted quickly to use technology to create connection.
The productivity dividend and the client experience dividend that resulted from this shift will not go away. It will be down to the new generation of practice principals to take the lessons of the pandemic and build on them.
Ahead of us lies a huge challenge – and a huge opportunity. The needs of current clients are complex, new clients will bring difficulties of their own, and balancing the two will not be easy.
But as the older generation steps aside, a new generation is ready to energise the industry, building on what their predecessors have achieved in terms of professionalism and the use of technology, and finding new ways to achieve the age-old goal of helping their clients to build secure futures.
Ben Goss is chief executive of Dynamic Planner
